Well, in the last two weeks or so at least two major lenders have revealed increased LTV products at competitive interest rates. Now either their Treasury functions are particularly high risk takers or they are simply very astute; I would suspect the latter so perhaps we are truly on the up again. Any increase in higher LTV products will be slow to filter through but the sense of returning confidence and, more importantly, income flow however slow will be very welcome to the intermediary market.
FSA views
Many words have been written about a variety of announcements and speeches made by the chief executive, chairman and executives of the FSA in recent weeks on a range of subjects all linked by concerns about management and controls of financial services firms, the economic environment or criminal and/or fraudulent activities. The chief executive Hector Sants set out his views on the FSA’s regulatory philosophy and supervisory approach, upsetting many by saying firms and individuals should be very afraid of the FSA.
While criticised by many for using these words, the frustration relating to firms seemingly not listening to the FSA, following the rules and guidance no doubt were a key driver in making this comment. This alongside the chairman’s longer-term views on financial services regulation in a pan-European environment has given many industry professionals much to digest in the last month or so.
The last few months been distinguished by the challenges thrown up by the continual speculation attached to the RDR situation alongside the above views and implications. In an unstable market where survival is the single most important activity and thought process this makes it very difficult to generate clarity of thought and foresight. While those still surviving will undoubtedly have constructive and incisive views as to where the market should and could go in the future, the difficulty is being able to step back and both think and assess objectively the issues.
Questions
Question: My firm, a mortgage and insurance broking business of long standing, has to date managed to survive although the daily survival test remains for my business partners and me. We have a loyal group of clients whom we would hate to let down. As part of our ‘risk and doom’ deliberations, as we have called them, we have often tried to assess what would happen to our clients if we did cease trading.
Like many we read of firms stopping trading or being closed down, but rarely do we hear what happens to their clients. Do the FSA step in if they are closing a firm down and advise the clients where to go or what to do? There must be orphaned lender customers where the lender has ceased operating, where do they go for advice especially if they think they have been badly advised? Can you answer these questions?
Answer: A very good question which is not easy to answer as you have raised a number of issues which in certain ways have no clear answers but I will try to briefly address them.
Taking the situation where a firm is closed down, usually by the regulator first. It is likely that the FSA will have been carrying out a client review or have asked the firm to commission one in many situations, so in all probability those clients contacted by either the firm themselves, the FSA or another ‘skilled person’ type situation will know what the problems are and how they can obtain redress perhaps via the Financial Ombudsman Service or the Financial Services Compensation Scheme.
There can also be the scenario where the firm ceases trading perhaps anticipating problems where the clients have no idea there may be a problem with the quality of advice they have received. The firm closes and there is no-one to tell them what was wrong or the issues involved which might impact them; those clients are in effect in no-man’s land, abandoned you might say. Should the FSA do more given it is probably outside its remit and capability? Orphaned lender customers are likely to be slightly more fortunate as they will probably have been sold en bloc to another lender or similar body who will have more of a vested interest in assisting them.
Question: The sourcing systems are slowly copying the Home Buyer System and providing brokers with access to direct to lender products. Is this a sign that when the FSA announces its review of the mortgage market it will become a requirement to advise the mortgage client from the ‘real’ whole of market range of products?
Answer: I would personally be very surprised if that wasn’t the result, as it seems logical and fair to clients. Those brokers and individuals using the Home Buyer System must have had a slightly less difficult time in recent months with TCF if nothing else.
Question: Hector Sants the FSA chief executive has made it clear that he expects the owners of firms, boards of directors, non-executive directors and senior managers within firms right across the financial services industry to improve their attitude to business risks and the controls needed within firms. There has been quite a lot talked about non-executive directors and their role within businesses. Do you think it’s fair to point the finger at these non-executives in the current environment?
Answer: There is little doubt that because of all the well-documented difficulties we are experiencing that the role of non-executive directors has become a talking point, probably in many people’s eyes as they are seen as a cost rather than adding value. I think it is fair to highlight their role, as they exist mainly to act as a brake, a sounding board, and most of all, a challenge to management/business owners in the pursuit of strategies and business goals that need to be robust. I guess in certain firms the non-execs will not always have been kept in the picture and therefore able to fulfil their legal function. I believe that a non-exec with a good breadth of experience and knowledge can be worth his or her weight in gold to firms especially the small to medium-sized firms.
